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Tax Point of redundancy

is it date of payment or date of redundancy

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One of my late club hand sitters for SA was made redundant 1st April 2020.   

They have substantial payments received on the April 2020 payroll (tax month 1)

They have not worked for 20/21 so it being taxed in 20/21 is a clear advantage.

Would HMRC be able to take the redundancy date ats the tax point (being strictly 19/20)  or is it simply the period in which it was processed as per normal PAYE rules?

 

Replies (9)

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By paul.benny
01st Feb 2021 14:18

If the payments have been processed as part of April payroll, as far as HMRC will be aware, they are April payments. Why rock the boat?

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Replying to paul.benny:
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By Hugo Fair
01st Feb 2021 15:06

The boat may already have been rocked (or at least flagged up to HMRC) ... IF the employment End Date has been reported on an FPS (whether in the April or an earlier submission).
It should have been, so the question is really what date was reported?

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By ireallyshouldknowthisbut
01st Feb 2021 15:39

its not a question of boat rocking. Its a question of tax law. Either its part of 19/20 or its part of 20/21, and if I advise my client that it can be booked into 20/21 and I am wrong then that would be a serious matter given the tax will be out by thousands.

The last day was 1st April 2020 per the P45. PILON and other matters were paid in April 2020, but the trigger date seem clear.

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Replying to ireallyshouldknowthisbut:
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By Hugo Fair
01st Feb 2021 17:18

Sorry for my apparent flippancy ... what I was driving at was that the Employment ceased on 1st April (i.e. in tax year 2019-20), and logically any associated redundancy payments should be calculated 'as at' that date (not merely when the company gets around to paying it) - what you refer to as the trigger date. Of course, HMRC will be aware of this date via the FPS.

The problem, as so often with Payroll, is that HMRC guidance (and not just the stuff on GOV.UK) is so poorly phrased that people manage to interpret it to mean whatever they'd like it to be. For instance, the concept of PENP is meant to refer to payments made after all pay directly due under the employment contract has been accounted for. But the stupid acronym chosen means that some people think it refers to any payment made after the date employment has ceased (not of course always the same thing)!

I can find nothing in the ITEPA references given by piggybank on the subject of "date as at which tax should be calculated" - nor indeed anything in the various HMRC guides.

Whilst my opinion is clear ... if you need to provide advice, I'd suggest the CIPP might be able to point you at relevant documentation? Although they will come at it from a Payroll (rather than SA) perspective, it's the same legislation that they will or won't be able to point you at.

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Replying to Hugo Fair:
By ireallyshouldknowthisbut
01st Feb 2021 17:24

@Hugo, I appreciate your help in this matter. I was looking at HMRC's manuals.

https://www.gov.uk/hmrc-internal-manuals/employment-income-manual/eim13100

It gives that payments which are not post employment notice pay (ie taxable redundancy of which there is an element) is taxed as received, so 20/21, but the PILON is taxed differently. Section 17(3) ITEPA 2003

"Treatment of earnings for year in which employment not held"......"If that year falls after the last tax year in which the employment was held, the earnings are to be treated as general earnings for that last tax year."

Which it would appear is 1st April 2020, so I think we are in a curious split position here.

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Replying to ireallyshouldknowthisbut:
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By Hugo Fair
01st Feb 2021 18:03

I hope you've got a lot of time on your hands (or that your brain appreciates being slowly fried) ... if you're setting off down the road of HMRC's EIM pages. They are the best documentation out there, but do tend to take you into near infinite loops of side issues rather than taking you to a structured conclusion.

For instance, your EIM 13100 reference says "Post-employment notice pay is ‘for’ the last tax year in which the employment was held" ... but this is prefaced by a sentence that points you to EIM 40008, and this in turn has a link to EIM 42200 and thence to 42201 - which (under chapters 4 & 5 of Part 2 ITEPA 2003) says:
"Note that the year when the earnings are received is not necessarily the same as the year that they are for. The year that earnings are for determines whether the earnings are taxable at all. If they are taxable, the year that they are received determines when they are charged to tax."!

So you can probably find a phrase to support almost any opinion ... hence my suggestion to get the Institute's opinion (not because they necessarily know the absolute answer but at least the opinion should carry more weight than my, or anyone else's, thoughts on this forum).

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Replying to Hugo Fair:
By ireallyshouldknowthisbut
01st Feb 2021 18:52

Well I will probably use my tax helpline ultimately for confirmation of treatment, but it helps to be able to ask as very specific question to them, and by reading around I can then pick up the possible points that might be of relevance. I find the manuals quite useful in sign pointing the relevant legislation, which in this case seems quite clear. As a non-CTA my detailed tax knowledge of the legislation is at best 'patchy' at worst, 'barely exists'

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By piggybank
01st Feb 2021 15:56

I do believe that redundancy payments will be taxed at the time of payment (ITEPA 2003 s403 and 404).
I also thought that the employer should deduct tax from the taxable element of any redundancy payments. Tax deductions made as normal tax code if paid before P45, or by using 0T month1 if paid after P45. If this was done in April 2020, I would have thought that it should also be dealt with on the 2020-21 SA?

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Replying to piggybank:
By ireallyshouldknowthisbut
01st Feb 2021 16:46

@piggybank, thanks for the references. I am a duffer at finding stuff like that.

There is tax deducted at source, but that is ultimately just a timing issue, rather than an assessment of liability for a client in SA.

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